Portfolio A consists of a 2-year zero-coupon bond with a face value of $8,000 and a...

Portfolio A consists of a 2-year zero-coupon bond with a face value of $8,000 and a 10-year zero-coupon bond with a face value of $2,000. The current yield on all bonds is 11.75% per annum. (Answer with two decimal digits accuracy)

The duration of portfolio A is

Expert Solution

Solution:
Bond	Maturity	Yeild	Mac. Duration	Present Value Factor (n years ,Yeild)	Par value	Market Value	Weights
2 year bond	2	11.75%	2.00	0.801	$ 8,000	$ 6,408	0.91
10 year bond	10	11.75%	10.00	0.329	$ 2,000	$ 658	0.09
						$ 7,066

Duration of portfolio	= W1D1+W2D2+…......WnDn
		Where
		W = Weight of bond
		D = Duration of bond
		n = number of bonds in port folio

		= 0.912+0.0910
		= 2.72 years

jeff jeffy answered 3 years ago

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